Caterpillar Inc. (NYSE:CAT)
Why are investors shorting Caterpillar?
- Caterpillar Inc. (NYSE:CAT) is the dubious winner for biggest short interest increase within the Dow this month — a 107-basis-point increase from July. The thesis here is very much the same as last month, but since investors have had time to really absorb Caterpillar’s most recent earnings report, the pessimists have been coming out of the woodwork. In that second-quarter report, Caterpillar again lowered its full-year revenue and EPS forecast with sales shrinking by 16%. For the past six months, Caterpillar Inc. (NYSE:CAT) has pretty much cut estimates through 2015 across the board.With most commodity prices still weak, short-sellers expect mining activity and heavy-duty construction orders to be tepid at best.
Is this short interest warranted?
- Although I’m bullish on Caterpillar over the long run, I can completely understand why short-sellers have piled into Caterpillar in the interim. Caterpillar’s latest earnings report was absolutely dismal and it would take quite the rapid surge in commodity prices to cause Caterpillar to boost its revenue and EPS estimates. Unless we see a rapid improvement in Brazil, Russia, or China’s GDP growth rates, Caterpillar may continue to struggle come earnings time.
Source: David Precious, Flickr.
Hewlett-Packard Company (NYSE:HPQ)
Why are investors shorting Hewlett-Packard?
- The bet against Hewlett-Packard Company (NYSE:HPQ) is a very similar to the bet being made against Intel — that PCs are ceding market share more quickly than anyone imagined. HP is making strides to improve its cloud-based software and printing division, but the scope of the shift away from PCs caught HP by surprise. The end result for HP has been massive layoffs focused on reducing expenses by $3.5 billion annually and increased R&D spending that’ll move the company’s core line of products into the cloud. In the meantime, short-sellers anticipate that Hewlett-Packard Company (NYSE:HPQ) will struggle on the top-line which is why they’ve been piling into the stock.
Is this short interest warranted?
- Had you asked me when HP was under $15, I may have said not so much. With the share price still well above $20, I definitely feel short-sellers may be onto something. In all fairness to optimists, HP is still capable of producing a lot of cash flow, which, in its own right, should help buoy the share price. Then again, consumer PC sales were so atrocious in its third-quarter results reported last week (down 22%) that I don’t see how you can be all that positive on HP. Even software revenue, which comprises its cloud segment, saw a revenue increase of just 1%. With HP noting that revenue is unlikely to increase, even next year, I think short-sellers may wind up with a firm grasp on this company for at least the next couple of quarters.
DuPont
Why are investors shorting DuPont?
- Of the five Dow Jones Industrial Average (INDEXDJX:.DJI) components here, DuPont had the most sizable drop in short interest from last month. The drop is a bit odd given the reason that short-sellers have latched onto DuPont — its lack of top-line growth and consumer backlash against crop nutrient providers — remains as steadfast as ever. In the second-quarter, DuPont delivered a 1% decline in revenue over the previous year, lending little hope to optimists that it’s turning the corner.
Is this short interest warranted?
- Partly yes and partly no. DuPont’s weak growth since the recession has left me very perplexed, and its cost-saving methods will only pull its EPS so far. Then again, it has a very low beta, which tends to be a deterrent to short-sellers looking for a quick buck, and it’s perfectly positioned in the agricultural segment to help improve crop yields around the world. With the population expected to increase dramatically over the next decade, DuPont has a chance to become considerably more profitable than it is now.
The article The Dow’s 5 Most Hated Stocks originally appeared on Fool.com is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends Intel.
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